December 12, 2017

Do We Have a Labor Shortage?

To the editors of the Wall Street Journal’s list of reasons that employers find it hard to find workers:

The biggest labor story this Labor Day is the trouble that employers are having finding workers across the country. Friday’s report of a modest gain of only 156,000 new jobs in August doesn’t change that reality even though the jobless rate rose a tick to 4.4%

There are many reasons for the shortage, including drug use among the young, the disincentive to work due to easier disability, and the skills mismatch between what employers need and what kids learn in poor K-12 public schools. But the shortage will increase if the economy grows faster, so it’s good news that some in Congress have ideas to mitigate labor shortages in fields like construction and technology.

I would add several more. Nearly 10% of mortgages nationwide are still underwater (negative equity), ten years now after the financial crisis. That makes it harder to move for a job than it otherwise might be. The problem is particularly serious in black communities where the percentage of underwater mortgages is 20%.

Another issue is the large number of households making ends meet by two or more of its members working. That’s the case with more than 50% of married couples. That makes it easier to pay the bills but it also means that if you move for work either the job for which you are moving has to pay enough for the other spouse to stop working or you’ve got to find two jobs in the new location.

An additional issue, particularly problematic among blacks, is criminal records. If you’re poor stealing a bottle of wine from a convenience store can blight your life.

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Yet another issue is the manner in which jobs are advertised and filled. Many companies no longer have inhouse personnel departments that advertise and hire. They rely on temp or placement companies and many placement companies do business mostly or entirely by bringing in workers from abroad. That makes labor shortages look greater than they actually may be. Those are the reasons that I support a national clearing house for jobs.

A much graver issue is that most of the jobs that go unfilled are low wage jobs for which no one would or should move to fill. A great deal of that is by design.

I’ve told this story before but it bears repeating. Some years back I sat in the boardroom of one of the country’s biggest banks while a director explained his bank’s business plan as it related to hiring: rather than automating tasks they organized them to be performed by unskilled workers paid minimum wage. That way they wouldn’t need skilled workers to operate the machine and if the workers complained about wages or conditions or tried to organize they could easily be replaced. Multiple that by thousands or tens of thousands of companies. It’s what the Germans call the “American system”: maximize the number of minimum wage jobs. IMO it’s a widespread business plan and it’s not one that serves the American people well.

The construction and technology jobs to which the editors of the WSJ point are a red herring. The number of construction jobs on offer is actually declining and the percentage that goes unfilled is relatively low. The percentage of job openings in either industry is actually low. That assertion is supported by low wage growth in both the technology and construction industries. If the demand were actually growing sharply, you would expect wages to be rising. Where is the actual increase in jobs? Hospitality and food service.

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IMO that’s the best argument in favor of a high national minimum wage. The weakness in the argument is that in the absence of serious workplace enforcement it would be more likely to create a black market in employment than it would be to increase wages.

The graph at the top of the page illustrates something that might surprise you. See that tiny dogleg at the right end of the graph? The working age population of the United States has actually declined a little. Are we entering the same territory as China, Japan, Germany, and most of the other OECD countries? Japan is prospering despite a declining population because GDP continues to increase and its income inequality is low. We need to devote more energy to thinking about what sort of country we want to be. If we continue with the “American model” we’ll continue creating mostly low wage jobs, importing workers to fill them, and treating everyone who isn’t in the top few percent of income earners like dirt.

Originally published at The Glittering Eye.